A credit score, which consists of three digits, demonstrates your creditworthiness. Lenders look at it first when you apply for a loan or a credit card. It enables them to determine whether you can make timely loan repayments or not. Your credit history and score are the crucial factors that are taken into consideration by financial institutions when deciding whether to lend you money, the loaned amount, and the interest rate. Consequently, it’s crucial to keep a high credit score.
How Is The Credit Score Calculated?
Every credit bureau uses a different credit scoring model to determine your credit score. Even though your score may vary, each bureau uses the same criteria, which are as follows:
- History of payments: 35%
- Utilization of Credit: 30%
- Credit history length: 15%
- The mix of credits: 10%
- New credits: 10%
Why Do You Need A Credit Score?
A good credit score has many advantages. Some of them are listed below:
- Better conditions and lower interest rates for credit: You can get credit cards and loans from banks at a lower interest rate. Additionally, you may be eligible for additional advantages like a lower processing fee and a higher loan amount.
- Increased likelihood of getting a loan or a credit card: Due to their low-risk status, borrowers with excellent credit have greater chances of being approved for loans and credit cards.
- Access to the most lucrative credit cards: You can also qualify for the most lucrative credit cards on the market, which offer cash back, travel rewards, and other perks if you have good credit.
- Get your credit card approved for a higher credit limit: You may also be eligible for a higher credit limit on your card when you have a good credit score. Due to your established creditworthiness, creditors are more likely to extend you a larger loan.
How Can You Improve Your Credit Score?
Now when you know the numerous advantages of having a good score, let’s look at how you can improve your credit score to avail the benefits mentioned above:
- Check your credit reports: When attempting to improve your score, reviewing your credit reports is a great place to start. Do a credit score login online to see if you have any past-due bills or accounts that are being collected, as well as to look for any signs of fraud or identity theft.
- Utilize your credit: Credit utilization is another crucial aspect to consider when determining your credit score. It is recommended to keep their credit utilization at or below 30%. So, if you have several credit cards, be sure to monitor how much of your available credit you are using.
- Pay off any due loans or credit card bills: Pay your offstanding dues immediately if you want to improve your credit score. If you have an account of making late payments, your score will be low, and vice versa. Enabling payment alerts or auto debit is a good idea to make sure you consistently pay your credit bills and EMIs on time.
- Mixing your credits: A mixed credit account could benefit your credit, especially if it is a new type of credit. You should consider taking out a loan if you only have credit cards. A new credit card might be advantageous if you only have loans or a small number of credit cards. You can enhance your credit mix and lower overall credit utilization by making more available credit.
- Avoid opening too many accounts: When you apply for multiple accounts, you risk damaging your credit report. So, stop applying for many new accounts if you want to improve your score. The average age or length of your credit history, which you can manage by opening a new line of credit, is another factor that affects your score.
Therefore, follow the points mentioned above to increase your credit score to avail of loans without hassle.